Saturday, August 6, 2011

PAP may have squandered most of our gold reserve

Recently, I have been writing about US default and warning everyone about the precarious conditions of our US treasury bond positions. It seems that my predictions are unfolding as yesterday, S&P has downgraded US credit rating. All reserve except gold plunge.

First, data from MAS has lumped physical gold, with gold that are loaned out by MAS as well as gold swapped. That is enough to send chills down the spin. IMF defines the terms below.

Gold loans or deposits are undertaken by monetary authorities to obtain a non-holding gain return on gold which otherwise earns none. The gold is “lent to” (or “deposited with”) a resident or nonresident financial institution (such as a bullion bank) ...

Gold swaps are usually undertaken between monetary authorities. The gold is exchanged for foreign exchange deposits (or other reserve assets) with an agreement that the transaction be unwound at an agreed future date, at an agreed price......

In short, both gold deposit and gold swaps are forms of lending out gold, in exchange for "collaterals" of worthless fiat currencies or junk assets.Our gold is gone. In the most brazen fashion of creative accounting, PAP has booked "gold lended out" as part of our gold inventory, together with physical bullion.

Besides, people do not borrow our gold bullion just to keep at home. They dump it into the market after borrowing, hoping to profit by buying back at lower price in the future. Unfortunately, over the last ten years, gold price has increased an awesome 600% from US$280 to US$1650. There is no way our debtors are going to buy back those bullion and return to MAS. Our debtor will be dead bankrupt if they try paying us back our bullion, and they will never.

The outcome is PAP will let those swindler off-hook by accepting the worthless collaterals, instead of suing for bankruptcy and recovering our gold. Singaporean are all screwed.